Accounting Treatments for identifiable intangible assets
a person will not be automatically liable when they enter into a contract for a “Principal” that does not exist.
Under Section 132(1), if a person enters into a pre-registration contract, they will not bear any liability to pay damages, given that the opposing party signs a release to that effect, as outlined by Lipton & Herzberg (2001, p.142) . However, under Section 131(2), unless the person is relieved from all liability by the opposing party, a damages liability will be imposed on them when they enter into a pre-registration contract, despite if they are only acting on the behalf of an unincorporated company. Therefore, according to contract law, a promoter is bound by the contract and is entitled to its benefits under Section 131(1). Sections 131 and 132 do not apply to contracts that are supposedly entered into on the behalf of a company, even when the promoter who intended to enter into that contract, had not in actual fact, been gained by that company. The only way that a promoter can gain protection from the consequences of entering into pre-registration contracts, is if they gain a signed release from the opposing party under section 132. By virtue of contract law, according to Woodward and Bird (1999, p.172) , another way in which a promoter can avoid personal liability is where the company and the opposing party enter into a new contract, once that company is actually incorporated.
Furthermore, under Section 131(2), a promoter will be liable to pay damages to the opposing party of the pre-registration contract even if the company is or is not registered, but the contract is not approved of, or if another contract is entered into within an agreed time, then it should be a reasonable time, after the contract was entered into. The amount that the promoter will be liable to pay to the opposing party is the amount that the company would be liable to pay to that party, if they approved the contract, but it was not performed at all. Section 131(4) according to the Australian Corporations Legislation (2001, p.242) states that if a company consents to a pre-registration contract but does not perform any part of it, then the courts could order the promoter to pay all or part of the damages, in which the company is ordered to pay under Section 131(3), as stated by Lipton and Herzberg (2001, p.142) . If an opposing party sues for damages on the grounds of Section 131(2) because a company is registered, but does not approve the pre-registration contract or enter into another contract, the courts would do anything which it believes to be appropriate in the circumstances. Lipton and Herzberg (2001, p.142) also emphasise that the courts could order a company to do the following:
-pay all or part of the section 131(2) damages;
-transfer any assets that a company received because of a contract to the opposing party; or
-pay an amount to that opposing contracting party.